FOREX Trade Idea for EURGBP

Good potential trade medium Term Forex

Fundamentals: Economics and PoliticsClearly the Brexit process has enormous potential to affect this pair, it would still seem that the UK is in a poor position in the negotiations. Nobody is clear what the UK wants from the negotiations and the performance of its chief negotiator is being called into question, David Davies was described as unstable during the week and if you watch the press conferences you can see why. Davies is clearly happy about Brexit and has a grin from ear to ear at every meeting, I was surprised to see that he only stayed in Brussels for the Monday morning of a week long negotiation leaving his civil servants to negotiate. Every time I open the FT there is another article regarding the negative impact of Brexit but that has not yet managed to get into the general population of the country or the markets but I do think it is only a matter of time. A self imposed UK recession looms.​

The Data

Looking at the data it is clear that the EU economy is roaring, the surprise index graph shows a consistent upward trend in 2017 that reflects the fact that EU data is improving month on month and beating expectation. The ECB have already said they are beginning to talk about tapering their bond purchases and that is the first step towards normilisation, without question that will be Euro positive.

​The surprise index for the UK shows a different story, after delivering a solid first 5 months this year, since may the economy has taken a notable downturn. The trend on the graph has been negative for some months and that reflects the fact that published data has been below expectation and lower than the previous month. We are well aware that the Bank of England has been concerned about the economy since the referendum but was beginning to get more hawkish with the great economic data at the beginning of the year, we can now expect the BoE to move towards a more dovish view as they digest the slowing of the growth in the economy. This will mean a weaker pound going forward.

The Technicals

​The trend is clearly higher, the daily chart shows a series of Higher Highs and Higher Lows starting in October 2015 and only last month registering its latest higher high. As a swing trader that means I am only interested in going long this asset and will look for tradable pullbacks to buy. The new high was a crucial part in my trading plan, if it had not been registered I would not be suggesting this trade. A failure to make a new high would have suggested that the move was complete.

​The 4 hour chart shows the latest leg higher moving in a channel, my previous trades are also shown, I have been buying this asset for some time and with the new high I will continue to do so. Currently the pair is pulling back and looks to be heading back towards the bottom of the trend line. I intend to buy the pair somewhere in the blue box. I use plummer waves to give my exact entry points and to control my risk, I will be risking a maximum of 5% with an initial target of 0.94

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